Senate Finance Chairman: 501(c)(4) Laws Need Reform

In the wake of the IRS firestorm over targeting of conservative groups seeking tax-exempt status, Sen. Max Baucus said Congress needs to reform tax laws pertaining to 501(c)(4) social welfare organizations.

The recent IRS scandal over review of applications for tax-exempt status was the subject of two more congressional hearings last week, as lawmakers continue to investigate who in the administration had knowledge of the criteria used by the IRS Determinations Unit to review the applications and whether the policy was politically motivated.

We need to know who was involved and who was responsible, and we need to install new safeguards to ensure this targeting never happens again.

Three separate hearings on Capitol Hill were scheduled after IRS officials admitted that agency employees had singled out groups that had the words “tea party” and “patriot” in their names for additional scrutiny beginning in 2010. The groups were applying for 501(c)(4) tax-exempt status.

A May 14 report [PDF] from the Treasury Inspector General for Tax Administration confirmed that the IRS used “inappropriate criteria” to identify organizations applying for tax-exempt status, resulting in substantial delays in processing certain applications. It also concluded that employees of the IRS’s Determinations Unit in Cincinnati lacked knowledge of what activities are allowed by 501(c)(3) and 501(c)(4) organizations. Ineffective management allowed inappropriate criteria to be in place for more than 18 months and allowed unnecessary information requests to be issued by IRS employees, the inspector general’s office said.

Senate Finance Committee Chairman Max Baucus (D-MT) and ranking member Sen. Orrin Hatch (R-UT) have requested additional documents from the IRS that they hope will shed light on the scope and origin of the IRS process for screening applications for tax exemption. The Justice Department also announced it has opened a criminal investigation into the IRS’s political screening activities.

“We need to understand how and why this targeting occurred,” Baucus said during a Senate Finance Committee hearing last week. “We need to know who was involved and who was responsible, and we need to install new safeguards to ensure this targeting never happens again.”

Baucus said the “vague” tax laws that define how much political activity a 501(c)(4) organization can undertake may have contributed to the IRS’s use of inappropriate political screening terms.

“There are countless political organizations at both ends of the spectrum masquerading as social welfare groups in order to skirt the tax code,” Baucus said. “Once the smoke of the current controversy clears, we need to examine the root of this issue and reform the nation’s vague tax laws pertaining to these groups.”

Former IRS Commissioner Doug Shulman, who headed the agency from 2008 until November 2012, testified before the Senate Finance Committee and at a House Oversight and Government Reform hearing. Shulman said he was “dismayed and saddened” after reading the inspector general’s report about actions that created the appearance that the agency was not administering tax laws impartially.

“While the inspector general’s report did not indicate that there was any political motivation involved, the actions outlined in the report have justifiably led to questions about the fairness of the approach taken here,” Shulman said.

The controversy led acting IRS Commissioner Steven Miller to resign. Joseph Grant, commissioner of the agency’s Tax Exempt and Government Entities Division, is also leaving effective June 3. Lois Lerner, who heads the IRS Exempt Organizations office, also appeared at the Oversight and Government Reform hearing and made a brief statement that she had done nothing wrong before invoking her Fifth Amendment right not to testify or answer questions before the committee.

“Because I’m asserting my right not to testify, I know people will assume I’ve done something wrong. I have not,” Lerner said. “One of the basic rights of the Fifth Amendment is to protect innocent individuals, and that’s the protection I’m invoking today.”

She has since been placed on leave.

(official Senate photo)

Chris Vest, CAE

By Chris Vest, CAE

Chris Vest, CAE is vice president, corporate communications and public relations at ASAE. MORE

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